Fool Portfolio Report
Wednesday, September 4, 1996

by David Gardner

ALEXANDRIA, VA, September 4, 1996 -- Declines in General Motors and Iomega brought down the Fool Portfolio Wednesday, versus an insignificant up day for the market overall. A nice performance by 3Com was unable to save our day, as the Foolfolio put up its second red inker in as many September trading days. Folly gave up 0.35%, vs. gains of 0.14% and 0.13% for the S&P 500 and Nasdaq, respectively.

General Motors continues to waste away in the face of the impending potential for a strike by the United Auto Workers (UAW). The UAW is now planning to negotiate settlements with Ford and Chrysler first, leaving GM's hands tied when their turn comes around. The strategy is apparently to sign those deals first and thus put high-profile pressure on General Motors to sign a similar deal, absent separate dragged-out negotiations. GM's labor costs are "...extraordinarily high...." according to a professor quoted on the Dow Jones newswire. High labor costs make it pretty painful if they have to sign a deal for the same terms as Ford and Chrysler -- it will be interesting to see how the story unfolds.

For more on the tactics of the UAW when negotiating with the Big Three automakers, check out Today's Pitch by Paul Maghielse (MF Wheels). It was written and posted before Ford was picked as the first target in negotiations, but it provides an excellent look into the method behind the madness.

The market continues to sell off GM stock in advance of either a strike or a poor settlement for our company. This looks like the classic stuff of Dow Dividend Approach investing... the market not liking a potential situation (read Clinton healthcare plan and Merck, as one historical FoolPort example), and dumping on a strong company beforehand. Now down 6% for us, GM has underperformed our other Dow picks, but remains a place I'm happy to have my money.

Important as well to the recent underperformance, GM also reported a decline in overall sales this August. The company's revenues dropped 8%, compared to August of 1995. Of those sales, passenger cars lost 13.8%, while light trucks rose 2.1%. The overall industry is seeing roughly flat sales from last year to this... time for some more light trucks, fellas.

Iomega dropped a quarter. After providing investors more volatility than perhaps any stock in America from mid-1995 to mid-1996, IOMG has looked like a sleepy old Dow behemoth for almost two months, rarely straying far from the mid-$15 level. I keep up with the stock every day using our IOMG in Fooldom Today feature, which is located in the Message Board section (scroll to the bottom of the listbox) on our AOL site, and at /iomg/iomg_mn.htm on our Web site. (It's also available as a direct-to-your-emailbox service for pay in FoolMart.) IOMG in Fooldom Today appears every morning, put together by MF Numbers, MF Cheeze, and MF Jeanie, and is a summary of the best message board postings over the previous 24 hours. It is an invaluable resource for IOMG shareholders.

The latest edition, today's, includes an interesting retrospective from Louis Riley on the stock's short interest over the course of the past several months. This includes the observation that as of March 15, 1996, IOMG had 20.4 million shorted shares. However, there were only 45.6 million shares floating at the time, making for a Brobdingnagian short interest ratio of 45%. Today's numbers are 22 million shares short out of an approximate float of 100 million shares... about 20%. The prospect of a short squeeze is therefore less likely, or important to this stock's "story." At this point, we wait for the third quarter earnings report next month.

Iomega announced a jointly produced new Ditto 2-gigabyte tape backup drive, in partnership with Sony. IOMG makes the drives, Sony the higher-margin disks. This announcement revives a portion of the company's business that has greatly declined in overall significance since the introduction of the Zip and the Jaz. Teaming up with Sony is always a plus, and probably foreshadows (in my Foolish opinion) further efforts the company will make in the next 12 months toward strategic partnership.

Trois Com spurted $1 3/8 today, closing at a bid of $48 1/8. The ultimate short-term call firm, Soundview Financial, upped this stock from "short-term hold" to "short-term buy," no doubt propelling these shares. The firm raised its fiscal 1997 estimate for our boys in Santa Clara by 5 cents to $2.25 per share. (COMS operates on a May fiscal year, as you'll recall.) Those who make use of our wonderful Fool Search screen on AOL company can select the "Stock Reports" option anytime to check publicly traded companies' back earnings. Type in C-O-M-S and you'll find the operation racked up fiscal '96 earnings of $1.01 a share. First Call shows $2.84 a share for 5/98. That ain't bad, so far as growth goes, is it?

Looks like another fine Tom Gardner pick, doing a creditable (and profitable) job of following up his inclusion of the Gap in the Fool Portfolio over the past year.

While hosting my regular chat in our chat rooms last night, I got an interesting instant message from someone who'll remain nameless (name Foolishly changed below). It's the sort of thing we get from time to time at Fool HQ, and it may be helpful for our readers to understand and recognize it. To wit:

UnFool719: your "Foolishness" piece on investing with a full-service broker leaves a lot to be desired -- like the truth. As a full-service Investment Consultant I save investors like all these "bull-market" know-it-alls from themselves -- I deserve to be compensated for this and more than earn my keep

UnFool719: please get real

UnFool719: Fooldom is what this is -- the next time we have a nice correction/bear -- watch all your do-it-yourselfers go down with you - have fun in CD's!

Here we have a bit of "anonymous chatter on the Internet," coming of course (as so much of it does) from established institutional types who do not want to see The Motley Fool succeed in its educational mission. Business models -- long-time, entrenched, profitable ones -- are extremely threatened.

The upshot of this is that some brokers don't like Fooldom. Their attitude may be politely summed up as, "My customers are a bunch of idiots who need me to invest for them." This may be true, in some cases... I certainly don't believe that every American is a smart, responsible individual capable of running a market-beating portfolio. And I don't begrudge this broker his or her customers... go ahead, invest for them, and I hope you serve them well.

However, the obvious contempt this person has for those he/she works for is sad; reminds me that I enjoy working with thousands of highly motivated, intellectually curious people here in Fooldom. How debilitating for this broker to think and work this way on a daily basis; that's a sort of little hell on earth.

So why jeer? Why mock? Why fight education? Why root the market down? All of these attitudes come through cleanly in that instant message. And unfortunately, all of these attitudes are not only extremely unproductive but also exactly what most brokerage firms must promulgate. Their message has to be to make investing scary. They need you to feel insecure and dependent on them, so they can continue to take fees for investing your money.

In the end, we find that the most insecure elements of the establishment are those that try to make you feel most insecure. And the best ones are those that want you to be a better, more informed investor. For every few brokers who send us nice little notes like the one above, we have one who writes something completely different:

"I really appreciate Fooldom and wanted to drop you guys a note. I'm a broker, and I tell all my clients about you. My goal for them is to be better informed as investors, to learn as much as possible so that we can build a profitable, long-term relationship. Many of them feel more loyal to me than ever before since I pointed out your service." Etc.

This note reminds me of the brokers I knew growing up. Friends of our parents, they were and are outstanding individuals deeply responsible for the financial success of the many people they served.

In the end, I suppose it all comes down to character. Fool on.

--- David Gardner, September 4, 1996

Today's Numbers

Day Month Year History FOOL -0.35% -1.26% 24.90% 133.22% S&P 500 +0.14% 0.56% 6.44% 43.02% NASDAQ +0.13% 0.20% 8.71% 58.82% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 15.00 495.48% 8/5/94 680 AmOnline 7.27 30.00 312.49% 1/29/96 375 Medicis Ph 18.57 39.25 111.32% 8/11/95 125 Chevron 50.28 59.63 18.57% 8/12/96 110 Minn M&M 65.68 68.00 3.54% 8/13/96 250 3Com Corp. 46.86 48.13 2.70% 8/12/96 130 AT&T 54.96 52.50 -4.48% 8/12/96 280 Gen'l Moto 51.97 48.88 -5.96% 8/24/95 130 KLA Instrm 44.71 19.13 -57.23% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 30150.00 $25086.87 8/5/94 680 AmOnline 4945.56 20400.00 $15454.44 1/29/96 375 Medicis Ph 6964.99 14718.75 $7753.76 8/11/95 125 Chevron 6285.61 7453.13 $1167.52 8/13/96 250 3Com Corp. 11714.99 12031.25 $316.26 8/12/96 110 Minn M&M 7224.44 7480.00 $255.56 8/12/96 130 AT&T 7144.99 6825.00 -$319.99 8/11/95 280 Gen'l Moto 14552.49 13685.00 -$867.49 8/24/95 130 KLA Instrm 5812.49 2486.25 -$3326.24 CASH $1379.61 TOTAL $116608.99 Transmitted: 9/4/96